Trader422- I believe you said in another thread that you were going to play around with RPIs and hidden orders...any interesting findings you'd be willing to share?
No RPIs, for two reasons: (1) I can't do anything interesting until IB provides API support; (2) I monitor all the subpennies that impact me on a daily basis, partly to see if the RPI thing ramps up, and I have never seen a single NYSE subpenny yet ... plus, more than 98% of all the subpennies I monitor are still Finra prints, with maybe 1-3 per day BATS or EDGE.
But I've been kind of infatuated with hidden orders since IB allowed them last August and have a several things to say (keeping in mind that I don't have expert knowledge and would love to hear other elitetraders on this thread correcting me or adding different points of view and new facts):
1.
The first thing I did was to blindly switch over to hiddens for a big part of all my trading, just to see what would happen. My conclusions were that it is a different way to trade, with different microstructure stuff going on with the predators and somewhat different patterns of fills and no-fills, but the bottom line was: It definitely did NOT increase my profits or enhance my ability to manage risk, and it may have slightly decreased my profits.
2.
Later, I learned that the predators know immediately, if they care at all, where the hidden NBBOs are ... in fact they invented a special order type (NYSE calls it an ALO order) which basically has the purpose of allowing predators to sniff out the hidden NBBO quickly and quietly. Of course, they can also do old-fashioned pinging with 1-lots to find the hidden NBBO.
3.
I also read some papers on just how much hidden liquidity is out there in today's markets - it's a lot. So in general if you are trying to be the NBBO (hidden or not) in a less-liquid stock with a wide spread, you can assume you are an idiot because there are hidden levels inside the visible NBBO and the predators will generally have the whole thing sniffed out so THEY are the hidden NBBO all the time, if they want to be, which they usually do for these stocks.
4.
There is also a general idea out there that the predators algorithmically guess what the hidden size most probably is, and this is a fairly big number like, say, 1000 shares. This is relevant for a trader like me who often works with 100-300 share orders: If I'm trying to be hidden at the top of the book with a 200-share order, then a few milliseconds after my order becomes the NB it will be sniffed out by a predator, AND the predator will assume it's something like a 1000+ share order - giving him a lot of incentive to get in front of me with his own hidden order. The conclusion is that it's probably better for a trader like me to be visible with my little 200 shares as it becomes less likely the predator will want to get in front of me, at least with size ... if he thinks I might be an iceberg then he can ping me or use another special order type and see I'm not.
5.
This is the current thing that fascinates me and which I am actively working on: For my NYSE hiddens back in the order book (that is, they are not NBBO and never were), it appears that someone ALWAYS knows, at least whenever they want to, exactly where the orders are all the time ... predators will follow my hidden orders around instantaneously as I modify, cancel, resubmit, move up and down, or submit brand new hiddens at different levels in the book. Obviously this doesn't happen with every NYSE hidden order, but on bad days I observe it dozens or up to a hundred or so times, depending on how closely I'm looking for the behavior. To my knowledge, this has NEVER happened with any orders in any other order book - just NYSE. I was going to start a thread on this to see if any elitetraders can enlighten me as to what is happening, but I've been waiting until I can open a new non-IB account and experiment there to eliminate the possibility that IB/Timber Hill is coattailing me - a possibility that I consider highly unlikely, but you never know as it would be very easy for IB to notice that I've been an insanely consistent, low-volatility, profitable account for going on 13 years.
Would love to hear from other elitetraders on this subject ... but as you can see from my comments, it's just for fun because hidden orders are definitely not anything great, except for the predators.
